Has The Correction Started?

Posted by Lance Roberts: The X Factor Report

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“The world has ended as we have come to know it. What was previously believed to be impossible – has occurred. Despite the ever omnipotent hand of the Federal Reserve the market has corrected 2 weeks in a row which is an occurrence not previously seen since October of 2012.

While it may be hard to believe, after a 16% advance since the beginning of this year, the market has declined by a crushing 38.42 points or 2.3% from the closing peak. It is clearly a washout of epic proportions that have sent investors wheeling to the sidelines to seek safety.”

Obviously, I jest a bit about the magnitude of the decline but this was the general sentiment from the media on Friday. “How could this have happened? What caused it? Who’s to blame?”

This sentiment, of course, is exactly as I suspected accordingly to an article I wrote last week wherein I stated:

“Regardless, at some point, and it is only a function of time, reality and fantasy will collide. The reversion of the current extremes will happen devastatingly fast. When this occurs the media will question how such a thing could of happened? Questions will be asked why no one saw it coming. Fingers will be pointed and blame will be laid.”

So, has the correction really started? Has the point arrived to where, regardless of Federal Reserve interventions, the market can simply not go any higher? Or, is this just a pause that we should be reallocating assets into?

That is the focus of the newsletter this week. However, it is important to remember that despite my best efforts and analysis, we are only guessing at the future.

Catalysts And Analysis

I spent much of last week discussing various aspects of market analysis from fundamental to technical. (See Suggested Reading above) The bottom line is that just about the only thing driving the markets higher currently are the ongoing liquidity operations of the Federal Reserve.

As I stated in “3 Reasons For Higher Market Highs”:

“The most obvious driver of stocks currently is the Federal Reserve’s ongoing balance sheet expansion program which pushes liquidity directly into the financial markets. As the chart shows below there is an extremely high correlation, since 2009, between the expansion of the Fed balance sheet and the financial markets.”

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……read more by downloading the 17 page .pdf analysis HERE